I am a Warren Buffett fan. In large measure, this reflects an Omahan’s pride in the success of another native son. My Buffett enthusiasm also stems from admiration for Buffett’s earthy wisdom and simple lifestyle. Though I have spent the last thirty years living in Connecticut and teaching in New York, I am still a Nebraskan at heart and Warren Buffett is the ultimate Nebraskan.

Among his other observations, Buffett has correctly noted the dangers to a democracy of inherited wealth as well as the moral obligation of those who have done particularly well in American society to give back to that society. As Buffett observed, he would not be Warren Buffett if he had been born in Bangladesh.

These concerns have led Buffett to support retention of the federal estate tax and to express dismay that his federal income tax bracket is lower than his secretary’s. Buffett’s observations are particularly noteworthy because Buffett is an acquisitive investor who believes in the marketplace. He cannot be dismissed as hostile to accumulation, success or capitalism. On the contrary, he is one who celebrates and embodies those qualities even as he raises important concerns about federal tax policy.

All of this leaves me perplexed by the way Buffett is contributing the bulk of his assets to the Bill and Melinda Gates Foundation. Buffett has received excellent legal advice to guarantee that his contributions will not generate federal tax. This provokes the question: Why?

Buffett could give his fortune to the Gates Foundation in a manner which generates federal tax. This would leave less for the foundation but more for the federal fisc. Indeed, Bill Gates, like Warren Buffett, advocates retaining the federal estate tax. He too could leave his assets to his foundation in a fashion which would share part of those assets with Uncle Sam.

It seems strange for prominent and outspoken advocates of the federal estate tax to dispose of their assets in a manner meticulously designed to avoid the federal estate tax.

Buffett (and Gates) might explain this apparent contradiction by arguing that their charity is an effective substitute for taxation. Thus, the argument would go, when they give $1.00 to the Gates Foundation with no corresponding tax payment, they should nevertheless be treated as if they had paid $1.00 in tax since the contributed $1.00 is devoted to public purposes.

For two reasons, this explanation proves unconvincing. First, this explanation undercuts Buffett’s now famous comparison of his tax rate with his secretary’s. If Buffett’s charitable contributions are to be treated as if they were tax payments, Buffett’s taxes are then far higher than claimed when he compared his burden to his secretary’s.

Second, giving money to the Gates Foundation is not the same as giving money to the federal Treasury. The federal Treasury is controlled by the people of the United States through their elected representatives. The Bill and Melinda Gates Foundation is controlled by Bill and Melinda Gates.

I hope that Warren Buffett will rethink his plans. The same skilled lawyers who arranged for Buffett’s fortune to go the Gates Foundation tax-free could instead arrange for Buffett’s assets to go to this foundation on a taxable basis. The resulting payment to the federal Treasury would demonstrate that the sage of Omaha is willing to put his money where he says his heart is.

Recent Comments

This article misses the whole point of why Buffett supports the estate tax. It is not simply to get revenue for the federal Treasury. It is to prevent a permanent aristocracy from forming based on inherited wealth.

In addition, the taxes on his Berkshire investment, were it not tax-free, would be taxed at the long-term capital gains rate–which is far lower than the rates discussed which include the payroll tax et al.

Sean Hosty12th November 2008

Another reason the article misses the point is that Buffett’s fortune can accomplish much more public good than giving his money to the bloated inefficient, Federal Government. Nor, do I think Buffett wants his billions funding the Iraq war?

John Thacker12th November 2008

This article misses the whole point of why Buffett supports the estate tax. It is not simply to get revenue for the federal Treasury. It is to prevent a permanent aristocracy from forming based on inherited wealth.

The fact that Mr. Buffett’s company, Berkshire Hathaway, has insurance as its core business, and that life insurance (together with transferring the policy) is a primary way to avoid estate tax doesn’t mean anything? Repealing the estate tax would be bad for his company by making people less likely to buy life insurance.

This writer has missed the boat. Buffet has lobbied against the accumuation of wealth in individual hands – has never said anything against the transfer tax policy alowing the charitble estate and gift tax deduction. And further – it takes no particular skill to get the charitable deduction for your client – just give it to the charity.

The kids – and presumably further lineals – haven’t exactly been “left by the roadside”:

He (Buffett) also announced plans to contribute additional Berkshire stock valued at approximately $6.7 billion to the Susan Thompson Buffett Foundation and to other foundations headed by his three children. The bulk of the estate of his wife, valued at $2.6 billion, went to that foundation when she died in 2004.

steve13th November 2008

mr parker is right buffet left the bulk of his estate tax free to his childrens’ charity. I should either start my own charity for my kids or make my own church.

George Cisneros13th November 2008

Remember who he is and what he does to make money, and there is your answer.
The genius of Buffett is to come across as an average Joe, the guy next door.
The majority of his holdings are small closely held businesses that are well run. The problem for most of these type businesses is that either by improperly planned retirement, sudden disability or death – the family has an income and/ or estate tax bills, but are well shy of it with liquidity.
Buffett swoops in like superman. He provides a service, but he comes out way ahead.
If the estate tax was taken away, he would have to pay a much fairer price as the business is not between a rock and and a genius providing the hard place.

Wendy15th November 2008

I respect and support Mr. Buffett as a philanthropist, however if Mr. Buffett is so inclined to pay more in taxes or distribute the wealth, why doesn’t he start with taking a normal salary like every CEO does instead of hiding his true tax bracket under capital gains at only 15%? The vast majority of Americans making payroll income do pay taxes according to what they make. We work to take care of our children and grandchildren as the Bible promotes, it is our obligation to do so. Mr. Buffett shouldn’t generalize about taxation in any aspect of the tax code for the entire country when he is the only CEO collecting his fortune while avoiding social security & Medicare taxes, avoiding payroll income taxes as well as matching the 7.65% tax from his employees paying into FICA; this in addition to avoiding estate taxes by donating to charities – however very generous. He takes the money that he makes under capital gains/losses (on investments) and taxed at only 15%. Be clear, Mr. Buffett’s payroll or income tax is based on the value of his stock (Berkshire Hathaway), so his ‘salary’ therefore is only $100,000 to $200,000 per year. His personal reasons for doing so are commendable; however he should not make statements or promote for the rest of Americans to pay more in taxes in whatever area of the tax code, when he himself avoid taxes or uses the system to avoid them because of his personal decisions.

[…] Warren Buffett and the Estate Tax Nov 11 (Oxford University blog) – Professor Zelinsky suggests that Buffett, a prominent and outspoken proponent of the federal estate tax, who has criticised the fact that he pays a lower tax rate than his secretary, could and should contribute his fortune on a taxable basis. […]